Wednesday, February 13, 2013 4:31 am

Bahrain Air grounded by mounting debts

The Associated Press

Debt-burdened carrier Bahrain Air grounded all flights Wednesday after announcing plans to shut down operations and sell its assets amid struggles to rebound from the Gulf nation's unrest-driven downturn and competition with bigger rivals.

The small, privately run airline is among the most high-profile corporate victims from Bahrain's political crisis that erupted two years ago. The pro-democracy uprising by majority Shiites brought a sharp economic slump, but the kingdom's Sunni rulers claim growth is returning.

Government envoys and Shiite opposition groups opened talks this week aimed at easing the tensions, but unrest flares almost every day and continues to take a bite out of business, especially in the travel and tourism sectors.

All Bahrain Air flights were canceled after the late-night announcement of the shutdown. The five-year-old carrier, a rival to state-owned Gulf Air, also blamed the minister of transportation, Kamal Ahmed, for considerably restricting its routes and flights while demanding debt payment.

"This effectively strangles the airline by simultaneously requesting payments and reducing its ability to generate the necessary revenues both to make these payments and to sustain long-term profitability," the airline's board of directors said in a statement posted on the company's website.

The statement claimed the carrier "lost revenue" of $11.9 million in the past three months because of apparent refusal to consider its applications for new routes. Ahmed also is a board member of Gulf Air, which is also struggling with mounting debts.

The airline operated 112 regional flights to 18 destinations in the Middle East and Asia and had 300 employees.

It also faced competition from heavyweights such as Dubai-based Emirates and Qatar Airways.